Tag Archives: claims management

Throughout the first quarter of 2020, the insurtech landscape has remained vibrant. There are record-setting venture capital investments, weekly announcements of new insurance/insurtech deals and lots of excitement.

Over the last few years, the volume of insurtech developments and offerings in claims has grown exponentially, and many are being implemented to help reduce adjustment cost and provide consumers with more choice, greater access and ease. Digital interactions, remote damage inspection and direct-to-debit payments are becoming widely adopted to move reach a touchless claim process.

However, given the tremendous progress over the last three years or more, some would suggest we should be moving much faster.

Insurers say it’s simply too time-consuming to evaluate all the potential solutions. They also say that, while many of insurtech solutions are impressive, they only provide a single piece in a very large puzzle. Insurers also understand the significant work it takes to implement a solution: training, workflow and organizational changes just to get started. Insurers must be selective, which certainly elongates their decision-making cycles.

Insurtechs, meanwhile, are at the mercy of insurers’ decision-making cycles, while also facing investor pressure to grow. They have to remain patient — remember how the Ring doorbell was initially perceived? — but waiting is not a strategy.

Time for a new approach: Pairing

It is time for more pairings, or combining of forces. If two or more insurtech solutions combine to solve multiple challenges together, it is easier for insurers to commit.

Examples of individual components include: sensors to detect losses, chatbots to aid loss intake, image capture to estimate damages, AI fraud tools and e-payments instead of mailed checks. These can be very helpful but still force insurers to splice everything together and to manage a portfolio of providers, often resorting to manual workarounds.

The pairing trend has already begun

A better approach is to have, say insurtechs integrate with claim system providers, a la Guidewire and Duck Creek. Original equipment manufacturers (OEMs) and insurers are teaming up on telematics — look at the partnerships Ford announced with Allstate, Liberty Mutual and Nationwide. Hover and FileTrac announced a partnership to combine 3D photo visualization with a claim management platform.

Depending on where your insurtech stands today, a good first step is to self-evaluate and gather feedback from claims leaders, innovation teams and others. Consider which features are immediately adjacent and may add value if combined with yours.

There are endless potential pairing combinations to consider that could shape the next phase of the insurtech landscape. Insurtech alliances are not a one-size-fits-all answer but are very much worth exploring in this grow-or-die environment.

At the Connected Claims USA conference (June 24-25, Chicago), insurance leaders and insurtech partners will gather to learn and form lasting partnerships that will change the game.

DISRUPTION IN THE AUTOMOTIVE ECOSYSTEM: What to Expect, and How to Survive and Win

For the purposes of this paper, and to explain the codependencies and inter-industry impacts, we’ve chosen to define the auto ecosystem as including all business segments affected by the automobile, including: auto manufacturing, auto buyers and drivers; collision repairers; aftermarket suppliers, including parts providers; auto insurance companies and their policyholders; and the deep and extensive claims and services supply chain that supports them, such as the technology and information provider segments. Given the broad scope and complexity of the component topics, we have identified and provided a degree of depth on each one, but by no means should this information be considered exhaustive.

The entire auto ecosystem is in the midst of significant disruption, and the dizzying pace of change will only continue to accelerate. This disruption is the result of the convergence of upstream upheaval in these sub-segments of the auto ecosystem:

Over the last 30 years, the auto repair and automotive aftermarket segments were part of a steady and inevitable evolution. During this long-term progression, the auto physical damage industry adapted to a myriad of business innovations, technology enablers, program and process changes and product and service introductions. Some resisted these innovations as either real or perceived business disruptions or dis-intermediation while others embraced them as opportunities to be leveraged for business, market and strategic transformation.

The 2007/2008 “Black Swan” event, the U.S. recession, affected our entire economy and loomed large and ominous for a number of years. This became the foundation for today’s unmatched auto physical damage industry transformation. It triggered the start of unprecedented structural change within the U.S. and Canadian auto repair and aftermarket segments. This changing landscape became part of four distinct, yet connected, marketplace phases: contraction, consolidation, convergence and constructive transformation, which continue today.

Additionally, these four phases are being affected by a confluence of numerous, dynamic and impinging forces, which have both disruptive and transformational influences on today’s stakeholders. Some of the more influential external impact factors include:

Consequently, the traditional process of linear thinking, with its straightforward cause-and-effect structure, is giving way to a more realistic and more complex multi-dimensional thinking pattern that heightens the understanding of the frequency, acceleration and degree of change. It is important, in light of this, to build and leverage a strategic alliance ecosystem with customers, suppliers, competitors, investors and business partners to maintain and grow a collaborative brain trust. This shared commitment will help to co-create and foster constructive change within an organization in an attempt to influence its uncertain environment for the mutual benefit of all strategic partners.

Evidence of disruption in the auto insurance industry and its extensive supply chain is plentiful and portends even greater change. Long-standing leaders in the U.S. auto insurance industry have lost significant market share to more innovative consumer-centric carriers. Advanced analytics and telematics technologies have combined to enable new forms of insurance products, including usage-based insurance. The Internet of Things, including the connected car, will amplify this trend going forward and literally change the fundamental nature of insurance and risk management products, solutions and servicing. For example, consumers are now shopping for and purchasing auto insurance, and submitting and receiving claim payments, on their smartphones. Fueled by the entry of large and growing pools of private equity capital, rapid industry consolidation is occurring across several supply chain segments including the once highly fragmented collision repair industry and alternative parts supplier markets.

In this dynamic environment, we believe that the ultimate leaders and winners in 2015 and beyond will be those companies that most successfully focus and execute on the development of compelling personal mobility solutions; transform product development and distribution around the new consumer; leverage data and analytics across the enterprise; think, plan and execute globally; and aggressively collaborate, partner and affiliate as effectively as possible.

The new consumer, mobility and the internet of things

Today’s consumer is totally unlike that of the past, and they have created new challenges and opportunities for all participants in the automotive ecosystem, in particular for auto insurers. This new consumer, epitomized by Millennials, has embraced mobile technologies and the social media they support. This phenomenon has fundamentally changed how insurance is branded, marketed and sold. Moving forward, this same mobility will enable insurers to design completely new types of insurance products and manage risks much more effectively for policyholders and themselves.

The most disruptive group of mobility technologies is the rapidly emerging Internet of Things, much of which is controlled today by industry outsiders. The potential impact on numerous aspects and multiple lines of insurance, as well as on the rest of the auto ecosystem, is enormous.

Of related concern to the insurance industry should be the potential for these outsiders to leverage this valuable information to enter the business and become competitors. Some recent acquisitions include Facebook’s purchase of the fitness and location app Moves, Monsanto’s acquisition of crop insurance and data company Climate Corp. (which was started by former Google executives) and Google’s acquisitions of the connected home devices and security company Nest and the Israeli location-mapping service Waze. Verizon acquired Hughes Telematics in 2012.

The data generated by all of these businesses, which was never before so digitally available, can be combined with advanced analytics to accurately establish and manage individual and property risks. The ability to successfully acquire, control and effectively translate and use all of this data will determine the insurance industry’s digital gold rush winners and losers of the future.

Impact of OEM globalization

The impact of automotive industry globalization is pervasive within the automotive and aftermarket industries. It is one of the more significant continuing influential macro factors within the larger constellation and confluence of simultaneous conditions affecting the auto physical damage landscape. For example, the change caused by how vehicle manufacturers are aggressively re-engineering and consolidating their light vehicle platforms is evident in the worldwide auto manufacturing transformation underway; General Motors is planning to reduce in 10 years its current 26 global production platforms to just four by 2025. This globalization of cars and its many OEM implications will continue to drive significant change throughout the entire property and casualty auto insurance and auto physical damage aftermarket supply chain.

One of the key drivers of this manufacturing transformation is the National Highway Traffic Safety Administration’s CAFE standards, which require average manufacturer fleet fuel consumption to drastically improve from today’s 30.2 miles per gallon to 54.5 miles per gallon by 2025. By the 2016 model year alone, there will be approximately 250 new and different vehicle debuts and redesigns from both U.S. and foreign manufacturers. Ultimately, achieving strategic goals and objectives such as reducing fuel consumption and gas emissions by improving fuel economy and reducing the environment’s carbon footprint reflect the current megatrends end game.

As the OEMs drive to innovate globally, there will be intended and unintended outcomes involving the use of many new materials, engine downsizing, alternative powertrains, advanced integrated electronics, telematics and new repair technologies and processes, and producing light-weight vehicles. These innovations will be seen as a disruption by some, while being embraced by others who seek to leverage these global influences for future growth and competitive advantage.

Other ecosystem and supply chain industry consolidation

Another globalization perspective is being driven by increasing international trade and investment by private equity and strategic buyers involving an explosion in mergers and acquisitions within the property and casualty insurance and auto physical damage industries in the U.S. and throughout the world.

The following is a partial list of some of the more relevant recent M&A activity by U.S. and international companies in this ecosystem:

• The Carlyle Group (owners of Axalta and investors in Service King) acquires Nationwide Accident Repair Services of the UK

These acquisitions reflect the growing trend of an increasingly integrated global insurance and automotive economy resulting in an extension of business and market international strategies, introduction of new, innovative and disruptive technologies and processes, and brand expansion while also managing resource and risk diversification.

The digital data gold rush/ advanced analytics

We have entered a “digital Gold Rush” era – a modern version of the California Gold Rush of 1849 – with the gold being digital data, which is beginning to flow in torrents. This has huge implications for the insurance industry, and not least for property and casualty claims. Digitization is already having an impact across the claims technology and services supply chain, forcing supplier consolidation and compressing customer service cycle and response times to near real time. These forces will affect property and casualty claims technology, as well as information and services provider segments, which have historically been highly fragmented and privately owned and operated. National consolidation, volume aggregation and the infusion of sizable technology investments led by professional management teams offer significant medium-term rewards to the participants.

The most potentially disruptive group of digital technologies of all is the rapidly emerging “Internet of Things” or “M2M” (machine-to-machine) technology, with its potential impact across multiple lines of insurance. Of related concern to the industry should be the potential for non-traditional competitors to leverage M2M data and enter their business. An example is Google’s acquisition of the connected home devices and security company Nest Labs. The data acquired in all of these businesses, never before so digitally available, will be combined with advanced analytics to accurately establish and manage individual and property risks.

These powerful forces are all converging to drive mergers and acquisitions activity to unprecedented levels in the property and casualty insurance claims technology ecosystem, attracting increasing numbers of private equity and strategic investors, and providing attractive exit opportunities and strategic alternatives for participants, all while creating exciting new and innovative technology-enabled capabilities for insurers, agents, brokers and consumers.

Private equity and collision repair industry consolidation

The first two phases of the current collision repair industry structural transformation, contraction and consolidation, are part of a four-phase model consisting of contraction, consolidation, convergence and constructive transformation. These first two phases began to emerge and quickly expand after the start of the recession in December 2007. Simultaneously, private equity groups turned their attention to the collision repair industry; they looked under the hood and liked what they saw.

Private equity firms were on the hunt to find alternative investments that could yield comparative or better returns than were currently available during the trough and slow recession recovery between 2007 and today. Additionally, their interest is backed and driven by unprecedented amounts of strategic buyer, private equity and pension fund dry powder/cash-seeking investments that can drive higher valuations and returns on their capital invested. The current private equity investor groups competing in the consolidation of the auto repair industry are identified in the chart below.

There are a number of factors affecting the continued attractiveness of investing in the collision repair industry.

• the collision repair industry’s structural transformation is still early to mid-stage

• the stigma from consolidation’s failed first attempt during the early 2000s is now fully erased

• high barriers to new entrants associated with the MSO consolidator model

• business complexity

• mature management teams

• performance-based insurance DRP contract requirements

• brand recognition

• demonstrated economies of scale

• rising operational excellence with lean-based process environment

• replicable acquisition and integration models

• leveraging and expanding technology enablers

• insurance industry strategy aligned with MSO consolidator strategy

As consolidation continues to drive collision repair industry contraction, four MSO consolidators, ABRA, Boyd/ Gerber, Caliber and Service King stand out as the primary buyers or disruptors vying for multi-location and multi-region platform acquisitions. More nascent strategies are focused on market density and coverage through “build outs or tuck-ins,” acquisition of individual shops, constructing “green fields” and “brown fields” and utilizing franchise models in smaller tier markets.

The growth of MSO consolidators associated with these transactions has in all cases had private equity backing. When viewed in the context of an approximate $32 billion auto repair marketplace, there is room for further consolidation in what is still an oversupply of repairers within the approximately 33,000 U.S. auto repair locations.

The transfer of just more than $1.5 billion in multiple-location operator (MLO) platform transaction repair revenue from 2012-2014 excludes three large recapitalizations that included Caliber in 2013 and ABRA and Service King in 2014. If these recapitalizations were included, the total transfer of MSO consolidator revenue would have been slightly more than $3 billion, or approximately 10% of the industry’s annual revenue. Additionally, the MSO segment representing at least $20 million in annual revenue included 80 MSO organizations processing $6.3 billion in annual revenue at year-end 2014. How long private equity continues its aggressive funding of MSO consolidators is uncertain.

Supply chain consolidation in the auto insurance ecosystem

Beyond the collision repair segment, an unprecedented and powerful number of forces are converging to drive mergers and acquisitions activity in the North American property and casualty insurance claims and technology “ecosystem” to historically high levels, including:

• claims supply chain rationalization and consolidation

• rising adoption and deployment of big data and analytics solutions

• insurance product commoditization and the resulting business transformation

• an influx of private equity capital (already raised and seeking to be deployed in the sector)

• expectations of a continuation of a steadily improving economy with the prospect of lingering low interest rates

We expect these forces to amplify competition among well-capitalized strategic players and private equity participants who seek to create scalable and defensible positions in the industry. The implications for smaller, less capitalized, regional or technology- challenged competitors are meaningful.

Claims supply chain consolidation

The area in which we expect the greatest potential for increased activity in 2015 and beyond is within the claims supply chain. The property and casualty insurance claims ecosystem is composed of thousands of small local and independent firms as well as larger regional, national, and global vendors and business partners that provide mission-critical products and services to the claims operations of the property and casualty insurance industry, including:

• insurance technology and IT services, system integrators, core system and claims management software solutions and database and information providers, including communication, repair estimating and body shop management systems

One of the subsectors most affected by these factors is the highly fragmented and inefficient collision repair and parts business. Many of these are local, privately owned businesses with limited technology capabilities and management talent. National consolidation, often driven by private equity, can lead to expense rationalization, upgraded information technology systems, improved management and the ability to better respond to upstream customer pressure and improved pricing. By way of example, since its founding in 1998, LKQ (NASDAQ: LKQ) has consolidated the automotive repair alternative parts market in North America and elsewhere to become the largest provider of alternative collision replacement parts and a leading provider of recycled engines and transmissions, with annual revenue approaching $7 billion. In 2014, LKQ acquired Keystone Automotive, a leading distributor of aftermarket parts and equipment.

Additionally, one of the other important trends is the development of an electronic parts procurement and e-commerce solution for the large $15 billion, and still highly fragmented and inefficient, North American auto repair parts supply chain.

For smaller providers in the claims supply chain, now may be the time to consider combining with a larger, better-capitalized player, especially given the trend toward vendor management by insurance companies. A “going it alone” strategy will be increasingly risky as larger, national players will garner more market share by offering better pricing, superior technology solutions and greater geographic coverage than “mom and pop” operations.

Claims information provider expansion and consolidation

North American insurance industry auto and property claims operations, including their auto collision repair and property partners, primarily use the products and services of three claims information providers, each of which has expanded its offerings into automotive claims-related markets.

Mitchell International: In 2014, Mitchell International, a provider of technology, connectivity and information solutions to the property and casualty claims and collision repair industries, acquired pharmacy claims management software vendor Cogent Works as well as Fairpay Solutions. Fairpay’s service offering includes workers’ compensation, liability and auto cost containment and payment integrity services. These assets will expand Mitchell’s solution suite of property and casualty insurance-focused bill review and out-of-network negotiation services as it complements its 2012 acquisition of National Health Quest. Mitchell was acquired in 2013 by KKR & Co. (NYSE:KKR).

Solera, Inc.: The breathtaking series of recent U.S. and foreign automotive service industry and data acquisitions in 2014 by Solera (NYSE:SLH) includes the Czech and Slovakian vehicle valuation provider IBS Automotive, the UK vehicle valuation firm CAP Automotive, the insurance and services division of PGW (including LYNX, GTS and Glaxis), the claims-related business of UK-based Sherwood Group (Valexa Technolgies), AutoPoint (U.S.) and AutoSoft (Italy). HyperQuest (U.S.) was acquired in 2013 along with Distribution Services Technologies and Services Repair Solutions (U.S.), Serinfo (Chile), Pusula Otomotiv (Turkey), Ezi- Works/CarQuote (Australia) and APU Solutions in 2012. Since its initial public offering in 2007 (originally backed by private equity firm GTCR), Solera has completed 30 acquisitions globally and grown its revenue to more than $1 billion.

Over the next 12 months, we expect these information providers to expand in several directions through internal product development supplemented by strategic acquisitions. This expansion will likely include:

• deeper integration with claims management core systems

• introduction of new tools and services utilizing advanced analytics for use cases across the entire auto and property claims process

• further development of auto casualty and workers’ compensation medical management networks and services and cost containment solutions.

Predictions for 2015 and beyond

• The macro influencers of contraction, consolidation and convergence, combined with the intensity and high velocity of change among the confluence of simultaneous events, will continue to overlay and affect the structural change and the continuing constructive transformation currently happening within the entire automotive ecosystem.

• Property and casualty insurance carriers will sell micro-insurance and risk management services to customers based on digital connections to their bodies, automobiles, homes and other personal property; collectively composing the Internet of Things,

• Insurance carrier supply chain partners will increasingly assume claims servicing and resolution responsibilities and may well assume some or all of the associated risks in exchange for guaranteed transaction volume.

• Direct repair assignments through customer choice among the top 10 property and casualty auto insurers continue to grow, and many now have an assignment conversion rate of more than 50% to their DRP providers

• Analytics will evolve to change every aspect of insurance, including marketing, distribution, underwriting, pricing, claims and billing

• The pace and scope of supply chain consolidation within the auto insurance ecosystem will accelerate sharply in 2015 as existing players move to protect and grow their market shares. New, well-capitalized and more consumer-savvy players will enter the market with an array of powerful digital assets. Investors will continue to gravitate to the space, betting on attractive short-term upsides and adding fuel to the fire.

• MSO consolidators will continue to execute on their platform acquisition growth and development strategies. They will supplement their multi-regional and national growth with a combination of single repair center acquisitions, Brown field and green field build outs and franchise expansion to improve coverage and density in existing major and smaller markets.

• The traditional insurer-repairer business model, which is focused on an estimate exchange process, is likely to be transformed within three years and supplanted by a process driven by mobile technologies coupled with predictive analytics. This will reduce and eventually eliminate the need for repairer-carrier estimate exchanges for an increasingly higher percentage of claims.

Conclusions

• The ultimate leaders and winners in 2015 and beyond will be those companies that most successfully focus and execute upon the new realities identified in this report. They will also leverage a strategic alliance ecosystem in which they team up for success. They will accomplish this with customers, suppliers, competitors, investors and business partners as part of a collaborative brain trust where all are committed to co-create and change their organizations and their uncertain environments to their individual and mutual benefit.

• In this dynamic environment, we believe that the ultimate leaders and winners in 2015 and beyond will be those companies that most successfully focus and execute on the development of compelling personal mobility solutions and transform product development and distribution around the new consumer. They will leverage data and analytics across the enterprise, think, plan and execute globally and aggressively collaborate, partner and affiliate as effectively as possible.

• The auto parts supply chain, one of the most fragmented of all segments in the ecosystem, and until now characterized by numerous competing parts search and procurement platforms, will finally begin to consolidate in the hands of just a few well-capitalized, highly experienced and strategically positioned information and software providers.

• The ability to successfully acquire, control and effectively translate and leverage all of these new streams of data into actionable information and insights will determine the insurance industry’s digital gold rush winners and losers of the future.

• The area in which we expect the greatest potential for increased disruption in 2015 and beyond is within the claims supply chain.

• For smaller providers in the claims supply chain, now may be the time to consider combining with a larger, better-capitalized player, especially given the trend toward vendor management by insurance companies. A “going it alone” strategy will be increasingly risky as larger, national players will garner more market share by offering better pricing, superior technology solutions and greater geographic coverage than “mom and pop” operations.

• Many of the trends associated with the beginning of a slow, long-term, downward slope of future accident frequency such as the proliferation of accident avoidance technology, urbanization, car sharing, Uber, connected vehicles and telematics are already cooked into the expanding equation and future auto insurance and repair model reflecting reduced auto accidents and fewer repairable vehicles with new and hybrid insurance coverage offered by fewer surviving insurers.

This was originally published in the U.S. in ABRN in the July 2015 edition and in Canada in Collision Repair Magazine in the August 2015 edition.

This is the last in a series of three articles. The first is here. The second is here.

From the impact of analytics, digitization and more exacting customer expectations to the disruptive effect of regulation, geopolitical instability and two-speed global economic growth, the insurance marketplace will look very different in 2020. With the industry at a tipping point, the future belongs to businesses that can make sense of the gathering transformation and act strategically rather than simply reacting to events.

While some of the drivers of change in the insurance industry are common to all business lines, we believe that the impact will be seen in different ways and occur at different speeds. So what are the implications for each key insurance segment and how can businesses capitalize on them?

Property and casualty personal lines

A combination of automated underwriting and competition from aggregators and new entrants will drive down prices and accelerate the commoditization of motor, property and other core business lines. At the same time, new opportunities will continue to open up through new information-based models, both within traditional areas of insurance coverage and new fields, such as maintenance and concierge services. This “home intelligence” could pave the way for a broader range of concierge services built around a combination of customer knowledge and sensor technology.

Some customers might go further by giving the insurer – or information company, which might be a better description for this evolving business model – access to much of their personal data, which the company would use to tender for a range of personalized services on customers’ behalf.

Pressure on costs will make agency channels less economically viable and could lead to digital becoming increasingly dominant. But there will continue to be a strong role for agents in helping people to understand and manage what can often be complex protection needs. People may own more but have less time to manage the risks, be this damage, theft or breakdown, making the agent a valuable partner.

Opportunities for partnerships exist with travel companies and motor manufacturers, with insurance forming part of a bundled service. However, such partnerships could limit the insurer’s opportunities to build customer relationships and take advantage of policyholder data.

Data from car and equipment diagnostics, along with user behavior, will be exchanged with manufacturers and repairers, breaking down commercial boundaries and opening up further opportunities in design and maintenance. Further instances of this new ecosystem of information and assets include the integration of home sensor data with utilities’ and emergency services’ systems.

We estimate that the reduction in accident, personal injury and other auto-related claims as advanced driver assistance systems (ADAS) technology becomes more widespread could reduce annual auto insurance losses in a developed market such as the U.S. by at least 10% by 2025. But the risk and claims profile would be more complex as the driver switches between self-driving (and hence driver liability) on the one side and ADAS driving (and hence product liability) on the other. While there are regulatory prohibitions on autonomous driving at present, it may eventually not just be permitted in many countries, but even be obligatory, especially in high-risk situations.

Revenue models will shift from premiums to premiums plus subscriptions in offerings such as maintenance, prevention and vehicle management.

Commercial lines

As the risk environment and client demands continue to evolve, commercial lines insurers have considerable growth opportunities in areas such as cyber risk and supply chain risk. Holistic analyses open the way for broader risk prevention and mitigation discussions with both agents and policyholders.

Alternative risk transfer will continue to develop and expand, moving beyond catastrophe into areas such as cyber and supply chain risk.

Advanced analytics that help to quantify exposure change patterns could help to mitigate the frequency of accidents, business interruption and other losses.

Given the potential for sharply rising losses and ever more complex loss drivers, there will be a growing need for coordinated risk management solutions that bring together a range of stakeholders, including corporations, insurance/reinsurance companies, capital markets and policymakers across the globe. For some of these risks, such as cyber risk, some form of risk facilitator, possibly the broker, will be needed to bring the parties together and lead the development of effective solutions.

Life, annuities and pensions

The focus of life coverage will shift from life benefits to promoting well-being and quality of life. This new model will combine digital data and partnerships with gyms, diet and fitness advisers and healthcare providers. Well-being benefits are likely to appeal to typically affluent segments that tend to focus on staying fit and healthy, including both younger and active older customers. For a sector that has had significant challenges attracting young, single, healthy individuals, this represents a great opportunity to expand the life market, as well as attract older customers who normally would think it is too late for them to purchase life products.

Advanced analytics will enhance the precision, customization and flexibility of financial planning and risk protection, paving the way for solutions that easily adapt to life changes and stretch beyond insurance to cover a comprehensive range of financial needs.

Sensor technology will lead to increasing integration between insurers and healthcare providers, marked by information exchange, better understanding of risks and costs and the potential to not only make cover for people with pre-existing conditions more accessible but also improve health and prolong life.

Life coverage will shift to shorter-term contracts. At present, typical life insurance contracts are for the long term. However, this is a deterrent to most customers today. Moreover, behavioral economics shows us that individuals are not particularly good at making long-term saving decisions, especially when there may be a high cost (i.e. surrender charges) to recover from a mistake. Therefore, individuals tend to delay purchasing or rationalize not having life insurance at all. With well-being benefits, contract durations can be much shorter – even only one year.

To help dramatize how the different markets may look, here are three possible scenarios:

Scenario One: Property and Casualty in 2025

All-’round prevention and protection

“I got a text in the morning saying there’s a potential fault with the boiler. But by the time I got home it was fixed,” says Akil Badem from Istanbul. “I don’t worry about breakdowns anymore, because I know that my insurer will have it all sorted out.”

Akil’s boiler, security and other home equipment are all connected to automated sensors that optimize performance and minimize fuel usage. The connected devices can also detect potential faults and, if they can’t be put right automatically, alert the nearest repair and maintenance team. No more breakdowns, no more waiting. The comprehensive coverage provided by market leader, There When You Need It, also takes care of all Akil’s transport requirements, including best-price bus and rail fares, a car when he needs one and insurance that automatically adjusts to how far he travels, his speed, the road type and other risks, and whether he or the automated driving system is in control of the car. “It’s just so easy. A couple of clicks on my mobile, and it’s all up and running. I can’t believe how people got along before,” he says.

Grace Nkomo, CEO of There When You Need It, says, “In 2015, we saw that everything was changing in our marketplace, be this how auto insurance is underwritten or the possibilities opened up by the Internet of Things. We knew that if we use the technology to change how we connect with and serve our customers, we could create an early-mover advantage that we’ve maintained ever since.”

Scenario Two: Life, Annuities and Pensions in 2025

Fit for the future

“I’ve never felt better,” says Karen O’Neil from Seattle. “Every time I go to the gym, the cost of my health insurance and life coverage comes down. My insurance company even got me a great deal on trainers.”

Karen’s lifestyle, health and financial planning coverage is designed to make it easier to stay healthy, manage her finances and plan for the future. A wearable sensor monitors key aspects of her health and alerts her to fitness advice and any medical issues that need following up. The healthcare and life insurance package includes tie-ups with gyms, well-being counselors and sports-wear providers, putting the emphasis on how to stay fit and healthy, as well as medical and life benefits when they’re needed. There is also a savings plan that puts aside any money left over from the rent, food and other spending and automatically adjusts investments to market movements and Karen’s investment goals. “At 29, I thought that these kind of schemes were for people a lot older and wealthier than me,” Karen says. “But my personalized package helps me to feel good now – and I know I can adjust as my needs change.”

Scenario Three: Commercial Insurance in 2025

Advanced risk detection averts cyber attack

Remote monitoring centers operated by a major insurance company have thwarted a coordinated attack on a retail group’s online network. Cyber gangs were planning to bring down the group’s server and then hack into the accounts of its millions of customers. The insurance company’s monitoring centers were able to not only detect the breaches but protect the server from damage and ensure business carried on as usual.

The cyber protection forms part of a comprehensive “business as usual” risk management package, which automatically anticipates and responds to any problems in supply, customer service and reputational integrity. The service is designed to zero in on any threats and take preemptive action. Advanced risk evaluation and pricing analytics enable the insurer to take account of multiple existing and emerging risk factors and determine a dynamic price based on the cost of reducing and mitigating the risks, as well as transferring the risks in alternative markets. Monitors continuously track real-time events (e.g. geo- political, technology, environmental and social events) around the world to build an accurate and evolving qualitative profile of the exposures facing clients and how they can be managed.

How to Design Your Strategy to Face the Future

For many – if not most – insurers, this changing market is likely to require a significant change in products and the redesign of long-established business models. This will not be easy. It’s important to develop a clear vision of where and how the business intends to compete.

For some, it could include a wholly new value proposition. For life insurers, this could include a broader and more compelling offering built around quality of life and well-being on the one hand and the targeting of untapped segments on the other. For P&C companies, this could include assessing opportunities to enhance data and risk monitoring and looking at how this information could apply to a broader range of risk-prevention and protection needs.

Having established strategic intent, it’s important to determine how to target individuals through different messages and channels, simplify product design and re-engineer distribution and product economics. Further considerations include how to reshape the underwriting process to capitalize on new analytics and sensor information, as well as steps to make the sales and policy administration process more straightforward and real-time.

Such is the speed of market developments that it’s virtually impossible to predict what customer demand will look like in a few years’ time. Old approaches to strategic planning and execution may be too slow to keep up with the pace of change. Instead, we propose a four-step LITE (Learn-Insight-Test-Enhance) approach to marketing, distribution, product design, new business, operations and servicing.

Learn your target segments’ needs

Build the models that can provide insight into customer needs

Test innovations with pilots to see whether they resonate with customers and refine the value proposition

Enhance and roll out the new value proposition for specific segments

Using this approach, developments that would have taken years can be brought to market in a matter of months, if not weeks, and then assessed, adapted, and discarded/expanded to meet changing market needs. The result will be a much faster and more responsive business, capable of keeping pace with customer demands and capitalizing on unfolding commercial opportunities.

In conclusion, the future should be bright for insurers. They have opportunities to engage more closely and become a much more valued and intrinsic part of people’s lives, be they individuals, families or businesses. Insurers will have more information upon which to base smart solutions and serve a broader range of needs.

The challenge is how to make sure insurers capitalize, as the marketplace will be much more open and potentially less loyal.

There are lots of great technologies and innovative products being developed that can help redefine the future of the claims process. Most recently, real-time video has been taking its place among industry disrupters such as drones, the Internet of Things and telemetries.

We’ve seen Esurance, USAA and Erie Insurance adopting various video technologies. Yet, the use of video is still very narrow, focusing on real-time applications. In fact, there are three types of video capabilities, not just one, that can deliver a powerful opportunity to redefine the claims process.

Live or Real-time Video Streaming With the Insured

Live video streaming and video collaboration is one of the most critical pieces in being able to acquire a quick visual of the claim from the hands of the policyholder at first notice of loss (FNOL) or in any subsequent conversation. This technology has proven to drive significant efficiency savings by accelerating the collection of claim information, improving triage and even being able to estimate and settle claims remotely.

The largest impact of real-time video on the claims process is made by enabling quick resolution of small claims. Each organization defines its own thresholds for what defines a small claim, but typically any claim above a certain threshold will still trigger a traditional field loss inspection.

Yet, the insureds who are communicating from an area of poor connectivity or insureds who may not be comfortable using the video streaming technology to settle their claims will still require a field inspection. This is where there is an opportunity to apply video in another way to help streamline the field inspection process.

Field Video Claim Documentation

Unlike live video interaction, which is designed to help an inside claims professional see a transmission of what the policyholder is pointing at with a mobile device’s camera, video documentation focuses on a different problem – how to improve the field documentation process and accelerate the collection, delivery and preparation of the claim report.

A deeper look into the field operations shows that a field claims professional is overloaded with many responsibilities – traveling to the loss location, documenting the loss with pictures and preparing a report. With multiple assignments back to back, it becomes an almost impossible task to document and prepare a report one claim at a time. Instead, many claims are inspected with pictures and notes quickly taken on-site, and all the reports are prepared together once every day, every two days or even once a week. This approach delays the delivery of timely field information and hence delays getting the claims to closure.

Claim cycle time is critical in ensuring high quality of customer satisfaction. Video claim documentation breaks up the claims handling process in two. It allows field claim professionals to focus on getting to the customer and conducting quality on-site inspections. Meanwhile, the inside claim teams can focus on processing the claim as soon as video content is delivered. To enable this process, the field claims professionals simply document the claim in video rather than pictures, speaking freely as they capture the video of the claim. Think of it as “visual voicemail” for claims.

You may think that is nothing new. Everyone can take videos using smartphones. The challenge, however, is not whether video can be captured. The challenge is how the video content can be delivered into the business in a uniform and timely business process. This is where the right technological solution is needed to provide the means for field claims professionals to conveniently capture video in the field and deliver it to the inside teams. This means providing support for handling large video files, synchronizing video content, alerting about the arrival of new information and being able to support well-connected, low-bandwidth and “offline,” unconnected environments.

What if the customer has already captured the claim on video? This scenario identifies the next workflow – customer self-service.

Customer Self-Service Videos

Studies found that customers who participate in self-service during an issue that is well-handled experience higher rates of satisfaction. They feel that they have been a direct, significant contributor to the positive resolution. Hence, allowing the customer to deliver video claim information to the insurance company is a big opportunity to increase customer satisfaction.

Most customers capture loss information. Some take pictures. Others prefer to take video. Yet, most organizations do not have a convenient way to acquire large files from the customer. Typically, pictures are acceptable as long as they can be sent over email or uploaded online or through a mobile app. Acquiring a large video file from the customer frequently encounters technical limitations and requires a different approach.

To address customer self-service demands, it is important to account for two types of scenarios. First, imagine the customer calling to report the claim for the first time, before having recorded any visual information. In this scenario, the customer is instructed how to most effectively record the data and how to make the video available to the claims handling team. The second scenario provides the insured an ability to conveniently upload video of the claim to the organization after it has already been captured.

Takeaway

There are numerous additional workflows that can benefit from applying video capabilities, like underwriting, supplemental claims and contractor quality review. The key is that the right technological platform needs to be able to support all three key video workflows to cover the main scenarios that are encountered in the claims process. This includes not just providing the mobile technology to help capture or deliver videos to the inside claims teams, but also a convenient way for the inside claim handlers to receive, access and review the video content to complete the reports and settle the claims.

Introducing a closed pharmaceutical formulary into California workers’ compensation could produce two main benefits. The first is to further lower the cost of pharmaceuticals by either restricting or eliminating certain medications. The second is to reduce the possibility of drug addiction.

An October 2014 California Workers’ Compensation Institute (“CWCI”) report titled, “Are Formularies a Viable Solution for Controlling Prescription Drug Utilization and Cost in California Workers’ Compensation” states that pharmaceutical costs could be reduced by 12%, or $124 million, by introducing the Texas workers’ compensation pharmaceutical formulary.

To achieve the second benefit, an assembly member introduced AB1124 to establish an evidence-based medication formulary and wrote, “The central purpose of our workers’ comp system is to ensure injured workers regain health and get back to work. When workers get addicted to dangerous medications, goals of the program are not met. An evidence-based formulary has proven to be an effective tool in other states and should be considered in California.”

To confirm whether these benefits could be achieved through the introduction of the Texas formulary, a review of the CWCI study and the opioid medications available under the Texas formulary was conducted. The findings, summarized below, suggest that the answer is no.

Although California does not restrict or limit medications in treating injured workers, it does limit the prices paid and provides an opportunity to question prescribed medications that appear to be out of the ordinary. Medi-Cal prices (California’s Medicaid health care program) are used for establishing the maximum prices for workers’ compensation medications, in contrast to states such as Texas, which use the average wholesale price (AWP).

A review of two cost-saving examples that referenced specific medications calculated projected savings based on CWCI’s ICIS payment data for prescriptions paid between Jan. 1, 2012 and June 30, 2013.

The first example compared 50mg Tramadol prices from five different suppliers. The highest was $190, followed by $23, $18, $12 and $8 per script. Here, CWCI suggested that the manufacturer of the highest-priced script be removed from the California formulary. From mid 2009 through 2013, however, the unit price for 50mg Tramadol from the supplier of brand name Ultram and at least 10 other suppliers in California was nine cents, so the AWP for a script was $2. So, overpaying for medications is an issue even if the $190 supplier is removed.

The Workers’ Compensation Research Institute (WCRI) also reported that California claims administrators paid a unit price of 35 cents for 5mg Cyclobenzaprine and 70 cents for 10mg while the unit price from Californian suppliers was 10 cents for 10mg and 15 cents for 5mg. Again, the prices suggest that California claims administrators were paying more than the maximum prices.

Based on randomly selected manufacturers and strengths of the top 20 medications identified in the 2013 NCCI prescription drug study, California’s prices were on average 20% lower than the AWP and in some cases as little as 1/24th the cost. California prices were found to be at the lowest retail price range compared with those published on goodrx.com. Pharmacies located in Los Angeles, Miami and Dallas were used for comparison. Findings suggested employers in California workers’ compensation are paying no more than the general public for medications, whereas in Texas employers are paying more by using the AWP.

The second example compared script prices of seven opioid agonists, including Tramadol and Oxymorphone. Oxymorphone was the highest-priced script at $600 and Tramadol the lowest at $60 per script, suggesting a saving of as much as $540 if Tramadol were to be prescribed instead of Oxymorphone.

But prescribing oxymorphone when tramadol could suffice or vice versa could be regarded as an act of gross negligence by the physician. On the World Health Organization (WHO) analgesic ladder, tramadol and codeine are weak opioids regarded as “step two” while acetaminophen and NSAIDs are “step one.” “Step three” opioids include medications such as morphine, oxycodone and oxymorphone, which all differ in their pharmacodynamics and pharmacokinetics, so choosing one or more to treat pain becomes a balance between possible adverse effects and the desired analgesic effect. Oxymorphone (stronger than morphine or oxycodone) is recommended for use only when a person has not responded to or cannot tolerate morphine or other analgesics to control their pain.

A list of opioid medications published by Purdue Pharma was used to identify which opioids were excluded from the Texas formulary. The list of more than 1,000 opioid analgesics was prepared by Purdue to comply with the state of Vermont law 33 V.S.A. section 2005a, requiring pharmaceutical manufacturers to provide physicians with a list of all drugs available in the same therapeutic class. Being in the same class, however, does not necessarily mean they are interchangeable or have the same efficacy or safety.

The list showed available strengths and included (1) immediate and extended release, (2) agonists such as fentanyl, oxycodone, hydrocodone, oxymorphone, tramadol, codeine, hydromorphone, methadone, morphine, tapentadol and levorphanol and (3) combinations such as acetaminophen with codeine, oxycodone with acetaminophen, oxycodone with asprin, oxycodone with ibuprofen, hydrocodone with acetaminophen, hydrocodone with ibuprofen, acetaminophen-caffeine with dihydrocodeine, aspirin-caffeine with dihydrocodeine and tramadol with acetaminophen.

It appears that extended-release medications used for around-the-clock treatment of severe chronic pain have been excluded or are not listed in the Texas formulary, with a few exceptions. For example, 80mg OxyContin (Oxycodone) ER 12 hour (AWP $18, Medi-Cal $15) is excluded. 120mg Hysingla (Hydrocodone) ER 24 hour (AWP $41, Medi-Cal $34) is not listed. However, 200mg MS Contin (Morphine) ER 12 hour (AWP $31, Medi-Cal $26) and 100mcg Fentanyl 72 hour transdermal patch in both brand name and generic forms are approved under the Texas formulary. Immediate-release generic medications such as oxycodone, hydromorphone and hydrocodone with acetaminophen in all strengths are approved, but immediate-release hydrocodone with ibuprofen and oxymorphone in either immediate or extended release are excluded.

Would the objective of AB1124 be achieved by utilizing the Texas formulary? The above review suggests it would not. All the opioid medications available through the Texas formulary have the potential to cause addiction and be abused, possibly leading to death either accidentally or intentionally. As an example, the executive director of the Medical Board of California has filed accusations against Dr. Henri Eugene Montandon for unprofessional conduct including gross negligence. His patient was found dead with three 100mcg fentanyl patches on his upper chest. The autopsy revealed he potentially had toxic levels of fentanyl, codeine and morphine in his bloodstream at time of death. These three opioids are available under the Texas formulary.

An article published on the website www.startribune.com described the challenges in treating returning soldiers from combat duty. The article discusses Zach Williams, decorated with two Purple Hearts who was found dead in his home from a fatal combination of fentanyl and venlafaxine, an antidepressant. Venlafaxine in both immediate- and extended-release form is approved in the Texas formulary. In addition, the following statement was made in a 2011 CWCI study into fentanyl: “Of the schedule II opioids included in the Institute’s study, the most potent is fentanyl, which is 75 to 100 times more powerful than oral morphine.”

The top 20 medications identified by the 2013 NCCI prescription drug study were also compared with the Texas formulary, and six medications were found to be excluded, including three extended-release opioids, OxyContin (Oxycodone), Opana ER (Oxymorphone) and the once-daily Kadian ER (Morphine). The twice-daily, extended-release morphine MS Contin, however, was approved. Flector, a non-steroidal anti-inflammatory transdermal patch used for acute pain from minor strains and sprains, was excluded, as was carisoprodol a muscle relaxant classified by the DEA as a Schedule IV medication (the same as Tramadol). The Lidocaine transdermal patch, which is a local anesthetic available in both brand name and generic. was also excluded. Lidocaine patches have been found to assist in controlling pain associated with carpal tunnel syndrome, lower back pain and sore muscles. Apart from carisoprodol, it would appear the remaining five were excluded from the Texas formulary because of their high price rather than concerns regarding their safety or potential for abuse.

The U.S. Food and Drug Administration (FDA) is responsible for the approval of all medications in the U.S. Its approved list is the U.S. pharmacy formulary (or closed formulary). California workers’ compensation uses this list for treatment and the Medi-Cal formulary for medication pricing. In comparison, Texas workers’ compensation uses its own formulary, which is a restricted list of FDA-approved medications, and pays a higher price for approved medications than California’s system does.

Implementing an evidence-based formulary, such as in Texas, may result in an injured worker’s not having the same choice of medications as a patient being treated for pain under California’s Medicaid healthcare program. How can this be morally justified? Will we see injured workers paying out-of-pocket to receive the medications necessary to control their pain?

Claims administrators can greatly reduce pharmaceutical costs through their own initiatives by (1) ensuring that they pay no more than the Department of Industrial Relations (DIR) published price for a medication, (2) ensuring that physicians within their medical provider network (MPN) treat pain using the established pharmacological frameworks such as the WHO analgesic ladder, (3) ensuring that quantities and medication strengths are monitored, along with how a person has responded to analgesics, (4) ensuring that, when controlling pain with opioids, there is a heightened awareness for potential abuse, misuse and addiction, (5) establishing a multimodal pain management regimen including non-pharmacological therapies such as acupuncture, aerobics, pilates, chiropractic and physical therapy tailored to a person’s medical condition and, (6) for chronic pain, considering introducing an Internet-delivered pain management program based on the principles of cognitive behavioral therapy.

The progress of many of these initiatives can be automatically monitored through a claims administrator’s technology solution, where a yellow or red flag is raised when prices paid exceed the legislated maximum amounts, when a pharmacological step therapy or progressive plan has been breached or when non-pharmacological therapy goals have not been achieved.

Using these initiatives, as opposed to restricting specific manufacturers or medications through a closed formulary, will undoubtedly yield a far better outcome for the injured worker and lower the cost to the employer, benefiting all involved.